Oil prices focused on outcome of EU summit

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You'll always miss 100% of the shots you don't take.

Wayne Gretzky

The markets are now solidly in the hands of the EU leadership as yet another summit gets under way. Today is a carryover from Sunday's meeting and one that is hoped by all that the EU will finally come up a with a long-lasting and durable solution to a debt crisis that has been lingering for way too long and impacting the global economy as well as risk asset markets for way too long. The issues that have been intensely debated for the last week or so is the shape of the second Greek bailout, the recapitalization of the banks and how to lever and make the EFSF bailout fund more potent. Simply put if the Europeans do not come out with a credible plan today there will be another sell-off in all markets as we started to see during the US trading session yesterday. The EU needs to take the bull by the horns and once and for all really convince the world that they have a solid grip on the problem with a very effective solution to push it to the background so the EU economies can move forward and not backwards. The time for bickering is over and if they truly want to function as a European Union it is time to unify their thinking and finally just do it.

Heading into the meeting most risk asset markets are pretty much on hold. As the day progresses the markets will definitely be moving on every 30 second news snippet hitting the media airwaves about Europe and what may or may not be going on at the meeting. For the moment everything else will be playing a secondary role in risk asset price setting including today's EIA oil inventory report as well as any macroeconomic data or corporate earnings that hit the street today. That said oil has performed reasonably well during yesterday's risk asset sell-off and has continued to hold onto this week's gains even as the API reported a larger than expected build in crude oil stocks (see below for more details). The oil market has viewed comments by China's Wen Jiabao today regarding studying potential simulative policies for smaller companies as a sign that China may be moving back toward a more accommodative monetary policy and one that could result in an increase in oil consumption (as well as other commodity consumption).

The selling in the equity markets that began during the US trading session yesterday did not carry through to Asia or in Europe so far this morning as shown in the EMI Global Equity Index table below. The Index has lost about 0.6% over the last 24 hours but the selling has subsided as all market participants await the outcome of the EU summit. The Index is still well below the 20% bear market threshold showing a year to date loss of 14.7%. The US Dow remains in positive territory for the year with six of the ten bourses in the Index still showing double digit losses for the year. Brazil continues to be the worst performer in the Index. Equities are a neutral for oil prices at the moment as everything is caught up in a macro market led by the EU meeting.

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